ALBANY – In an election year, a number of state legislators already are not happy with Gov. Andrew M. Cuomo’s plan to raise taxes on New Yorkers by at least $1 billion.
On Thursday, they expressed no shortage of concerns over another plan the governor is eyeing: lowering the salaries of hundreds of thousands of residents, or more, in order to help employers fund a shift in state revenue collections to a new statewide payroll tax.
Sen. Catharine Young, an Olean Republican who chairs the Senate Finance Committee, drove the point home during a legislative hearing with Cuomo’s budget director, Robert Mujica, telling him the idea, if enacted, will make both lawmakers and the governor “extraordinarily unpopular” with taxpayers.
Cuomo in the coming week is expected to unveil at least a partial plan in an attempt to do an end-run around the new federal tax law that restricts what people can deduct in state and local taxes, such as property taxes. While most New Yorkers will get a tax break under the new law, Mujica said 1.7 million residents – mostly higher earning ones from downstate areas where property taxes are especially high – will lose the ability to fully deduct their state and local taxes beginning with the 2018 tax year.
A number of ideas are being considered by Cuomo as a “workaround” of the federal law that critics say disproportionately hits high-tax states like New York.
One is the creation of a new payroll tax. New Yorkers – possibly as an option or possibly on a mandatory basis – would have their state income tax obligations lowered. The state would be held harmless through the new payroll tax paid for by workers’ employers. Businesses, though, would be held harmless by lowering the salaries of employees, using those savings to fund the payroll tax expenses. While their salaries would be cut, workers would end up with the same take home pay because of the lower income tax obligations.
Lawmakers Thursday expressed concerns about how such an idea would affect things such as pensions, social security payments or child support requirements – all of which are based on a person’s gross salary. They also worried that lowering gross salaries would push more people onto public programs such as Medicaid, which has faced sharply rising costs.
Mujica acknowledged that the solutions are complex, but that each of the concerns could be addressed through changes to the tax code. The administration also is looking at permitting people to make donations to new charitable organizations created to fund local school districts; such donations would then be fully deductible under the new federal law.
“They are both creative. They are both designed to avoid specifically what the federal government is trying to do to us,’’ Cuomo said at an event on Long Island Thursday.
The number to describe the new law’s hit on New York is $14.3 billion. That is the amount New Yorkers claimed in federal deductions for state and local taxes that they will no longer be able to deduct under the federal law. But that number is not a net impact figure; it does not, for instance, factor in the tax savings that will be seen for most New Yorkers, especially upstate residents.
Mujica said 3.3 million New Yorkers now itemize on federal forms. Of those, 1.7 million pay state and local taxes in excess of $10,000 – the new ceiling on what people can claim for state and local tax payments on their federal taxes.
The Cuomo administration has been trying to make the point that all of New York should be worried about the federal law, including those who will benefit. Their argument is the changes will push higher income New Yorkers to move to other states. That will reduce revenues coming into the state that goes for statewide programs, such as school aid funding.
“We start from the premise that we can’t do nothing,’’ Mujica told lawmakers.
By next Thursday, Cuomo must, by law, give lawmakers any amendments he wants to make to the budget plan he unveiled in January. Mujica could not, however, tell lawmakers that all of the plans the administration might have for the federal tax end-run will be ready by then. Mujica also left open the door that changes to the state tax code might not be effective until the 2019 tax year.
Mujica also sought to allay concerns by critics who believe Cuomo is looking for ways to grab more tax revenues from New Yorkers through what would end up being some of the most sweeping tax code changes in generations. “The goal here is not to raise additional revenues for the state,’’ Mujica said.
Lawmakers also raised concerns about nearly three dozen tax credit programs – affecting everything from low income house developments to cleaning up of old brownfield sites – will be deferred under the new Cuomo budget. Meanwhile, Cuomo seeks to end a lucrative tax credit – worth nearly $450 million – for the film and TV industries, which have been big donors to Cuomo’s campaign.
The film credit, Mujica told lawmakers, “is creating jobs.’’